7. Auction Process
362. The following section outlines the general process for submitting an application to participate in the 700 MHz auction, as well as the general requirements and rules that apply prior to, during and post-auction.
363. The schedule for the auction process (Table of Key Dates) is included on Industry Canada’s Spectrum Management and Telecommunications website at http://www.ic.gc.ca/spectrum. Items and time frames included in the schedule may be updated from time to time. Interested parties are advised to check the website for any updates to the schedule of events.
7.1 Application to Participate
364. To participate in an auction, all applicants must submit the completed application forms, along with the financial deposits, details of the applicant’s beneficial ownership, information on any affiliations and associations as discussed in Section 5 of this Framework, and other documentation as required, by the date specified in the Table of Key Dates. Industry Canada will publish the list of applicants on its website soon thereafter.
365. The application forms for participation will be available on request by sending an email to: ic.spectrumauctions-encheresduspectre.ic@canada.ca. Additional documentation may be required in support of the application forms.
366. In addition to this Framework, the policies, rules and definitions associated with this licensing process are set out in the following documents:
- SMSE-002-12 — Policy and Technical Framework: Mobile Broadband Services (MBS) — 700 MHz Band, Broadband Radio Service (BRS) — 2500 MHz Band;
- Framework for Spectrum Auctions in Canada; and
- any amendment or supplement that may be issued by Industry Canada.
367. Licensees should also familiarize themselves with Client Procedures Circular CPC-2-1-23 — Licensing Procedure for Spectrum Licences for Terrestrial Services and the other Client Procedures Circulars mentioned in the conditions of licence.
7.2 Submissions
368. To participate in the auction, all applicants must submit the completed application formsFootnote 19 and financial deposits. In the interest of providing Industry Canada and other bidders with adequate information on the identity of all bidders, applicants are required to fully disclose the beneficial ownership for every entity that owns, directly or indirectly, 10% or more of the applicant’s voting shares, non-voting shares, partnership interests, or any other beneficial interests, as the case may be. Associated entities wishing to participate separately in the 700 MHz auction are required to disclose the names of their associated entities within their application, and to provide narratives describing all key elements and the nature of the association in relation to the acquisition of the spectrum licences being auctioned and the post‑auction relationships of the said entities. A list of applicants, their beneficial ownership information and the narrative on any associated entity relationships will be made available on Industry Canada’s Spectrum Management and Telecommunications website at http://www.ic.gc.ca/spectrum prior to the auction, so that all bidders have knowledge of the identity of the other bidders. Applicants are not permitted to change their beneficial ownership within 10 days preceding the start of the auction.
369. The consultation proposed that associated entities be required to submit their application in advance of the final application deadline; however, Industry Canada has determined that such applications may be submitted any time up to and including the final application deadline. Furthermore, entities are encouraged to approach Industry Canada at least two weeks prior to the application date if seeking guidance or a pre-determination as to whether their arrangement or proposed arrangement would be considered to give rise to a finding of association under this Framework.
7.3 Pre‑auction Financial Deposits
370. In order to maintain the integrity of the auction, Industry Canada requires that all bidders submit a pre‑auction financial deposit with their application.
371. In its consultation, Industry Canada proposed to determine the value of the pre‑auction financial deposit based on the licences on which the applicant wishes to be eligible to bid. Each licence has been assigned a specific number of eligibility points that are approximately proportionate to the population covered by the licence and it was proposed that the financial deposit be equal to $130,000 per eligibility point.
Summary of Comments
372. Rogers, SaskTel, TELUS and WIND supported the proposed financial deposits, whereas Sogetel and SSi suggested that the proposed financial deposits were too high.
373. Bell proposed a daily financial guarantee equal to 100% of the value of a bidder’s previous day’s last package bid, stating that this would enhance meaningful bidding, discourage gaming and promote the overall integrity of the auction. In its reply comments, TELUS supported the intent of this proposal, but did not find it practical. TELUS proposed that deposits be subject to a weekly top‑up process.
374. In the reply comments, Rogers, MTS Allstream and WIND were opposed to Bell’s proposal, arguing that it would make the auction more financially onerous for smaller bidders and that it would add complexity to the auction process. WIND added that there was no evidence of any winning bidders defaulting on payments in the last auction.
Discussion
375. A requirement for daily or weekly top‑up financial deposits would result in an additional administrative burden and it is noted that, to date, no provisional winner in an Industry Canada spectrum auction has defaulted on its payment.
376. Based on the above considerations, Industry Canada is of the view that requiring daily or weekly financial deposits is not warranted at this time. However, as in past auctions, Industry Canada will retain the right to request additional deposits during the auction.
Decision
377. Pre‑auction financial deposits will be equal to $130,000 per eligibility point. Eligibility points associated with each licence are listed in Table 4 of this Framework. As part of its application, a bidder will be required to submit 5% of its total pre-auction financial deposit. The remaining 95% of its pre‑auction financial deposit will be due at a later date, as specified in the Table of Key Dates. The deposits are to be in the form as described in Section 7.4.
378. An individual bidder requesting to be eligible to bid on the equivalent of one national paired block will be required to submit deposits covering 1,221 points, which will equate to $158,730,000 (i.e. $130,000 x 1,221). Financial deposit(s) will be returned to any applicant that is found not to be a qualified bidder and to any applicant that provides written notification to Industry Canada of its withdrawal from the process prior to the auction’s commencement. Financial deposits will be returned to unsuccessful bidders once the auction has closed.
379. Consistent with previous auctions, Industry Canada reserves the right to request additional financial deposits during the auction. This will be determined by considering factors such as the bid value on a package of licences and the bidding activity. The additional financial deposit will be based on a percentage, not exceeding 50%, of the value of the bidder’s package bid for licences in a specified round. Bidders will be provided three full business days to submit their additional financial deposits to Industry Canada. The deposits are to be in the form as described in Section 7.4.
7.4 Process to Submit the Applications and Financial Deposits
380. The application forms, the associated documents (as per the instructions provided on the application forms), and 5% of the total pre‑auction financial deposit are to be physically delivered to the Manager, Auction Operations (address provided in Section 13), by the date specified in the Table of Key Dates. Industry Canada reserves the right, under exceptional circumstances, to accept additional documentation after the initial deadline, but prior to publication of the list of applicants. Applications that are received without a deposit for 5% of the total financial pre‑auction deposit will be rejected. The remaining 95% of the total pre‑auction financial deposit is to be physically delivered as stated above, by the date specified in the Table of Key Dates. Applicants that fail to submit this deposit by the deadline will not be qualified to participate in the auction.
381. Upon receipt of the application and the associated documentation, Industry Canada will send notification to the applicant that the application materials have been received and confirming the amount of the deposit that has been submitted. This notice will not be an indication that the application materials or the deposits have been approved.
382. The financial deposits must be in the form of a certified cheque, bank draft, money order, wire transfer, or an irrevocable standby letter of credit, payable to the Receiver General for Canada, drawn on a financial institution that is a member of the Canadian Payments Association. The elements required in a letter of credit, as well as a sample letter of credit acceptable to Industry Canada, are provided as part of the application forms.Footnote 20 Multiple letters of credit (or other forms of payment) from one or more financial institutions will be permitted within reason. Industry Canada will treat the financial deposit for an applicant as being the sum of the amounts of each accepted deposit. Each financial deposit must comply with the conditions laid out herein. Financial deposits shall not have any conditions requiring the Receiver General for Canada to draw upon payments in any particular order of priority, or requiring any deposit to be drawn upon completely before drawing upon any other deposit. In the event that a qualified bidder does not become a provisional licence winner, the financial deposits that were submitted in the form of a letter of credit will be returned. Refunds to deposits submitted in the form of a certified cheque, bank draft, money order or wire transfer will likely take longer (perhaps several weeks longer) than a refund submitted by way of a letter of credit, as a cheque from the Receiver General for Canada will need to be processed.
383. If prior to the application deadline, an applicant would like to amend any of the forms that it has submitted and/or its financial deposits, it may submit one or more amended forms and/or financial deposits with an accompanying letter explaining that the enclosed form(s) and/or financial deposits are to replace the one(s) previously submitted. Any such amendments are to be physically delivered to the Manager, Auction Operations, by the receipt deadline for applications to participate in the auction. An applicant may decrease, but may not increase, its eligibility and applicable financial deposit until the receipt deadline for the remaining portion (95%) of the full financial deposit.
384. Upon receipt of an amended form(s) and/or financial deposits, Industry Canada will send a notification to the applicant that the amended form(s) and/or deposits have been received. The notification will state the amount of the new deposits that have been submitted. Where the financial deposits are in the form of an irrevocable standby letter of credit, the initial irrevocable standby letter of credit will also be returned to the applicant where applicable. Where the financial deposits are in a form other than an irrevocable standby letter of credit, any partial reimbursement of the initial financial deposits may take several weeks.
385. A list of all applicants will be made public via Industry Canada’s Spectrum Management and Telecommunications website at http://www.ic.gc.ca/spectrum. The publication of this list does not mean that these applicants have been approved as qualified bidders.
7.5 Bidder Qualification
386. Industry Canada will begin to review the application forms (and any associated documents) and the accompanying financial deposit(s) after the closing date for the submission of applications. In this initial review, Industry Canada will identify any errors in the application forms or financial deposits. It will also determine whether any additional information related to any affiliate or associated entity of the applicant, is required. Applications that are received without a deposit for 5% of the full financial pre‑auction deposit by the application deadline, or without a deposit for the remaining 95% of the full financial deposit by its deadline, will be rejected.
387. Following the initial review period, Industry Canada will provide applicants with an opportunity to correct any errors or inconsistencies in their application or financial deposits, and will request any additional information related to the affiliates or associated entities, where applicable. The original applications may be returned to the applicant with a brief statement outlining any discrepancy(ies) and/or omission(s), or requesting additional information. The applicant will be invited, in writing, to resubmit the corrected form and/or the additional information and to physically deliver this to the Manager, Auction Operations, at the address provided in Section 13, by the date specified in the written statement.
388. Applicants that do not comply with this request will have their application to participate in the auction rejected. Applications that are rejected, including those for which an opportunity has been provided to correct errors or inconsistencies identified by the Industry Canada, but are still found to be deficient, will be returned to the applicant outlining the deficiencies and will include the applicant’s deposits.
389. Applicants that have submitted acceptable application materials, including the accompanying initial financial deposit of 5% of the total pre‑auction deposit, will receive a confirmation letter that they have provisionally qualified to participate in the auction. Provisionally qualified applicants will be considered fully qualified, once the remaining 95% of the full pre‑auction financial deposit has been received by Industry Canada, by the stated deadline. Qualified bidders will receive additional information related to their participation in the auction through separate mail-outs at a later date. This information will include, among other items, a bidder information document, a user manual and the schedule for the information session and mock auctions.
390. A list of all provisionally qualified bidders, along with information related to their beneficial ownership, affiliates, and associated entities will be made public via Industry Canada’s website in accordance with the timelines stated in the Table of Key Dates. Should any of the provisionally qualified bidders fail to provide the remaining portion of the full pre‑auction financial deposit by the stated deadline, their application will be rejected and the list of qualified bidders will be amended accordingly.
7.6 Withdrawal of Application Forms
391. Applicants wishing to withdraw their application materials and have their financial deposits returned may do so, without prejudice, by sending a written request to the Manager, Auction Operations, at the address provided in Section 13. This request is to be physically delivered prior to 12:00 noon, (EST) on the business day preceding the opening of the auction.
7.7 Change of Information
392. Only the Auction Authorized RepresentativeFootnote 21 of the bidding company may notify the Manager, Auction Operations, of any material changes in the information submitted in the application documents. This includes any changes to the names and contact information of qualified bidders and designated bidders. Written notification must be sent by the Auction Authorized Representative to the address provided in Section 13, within five business days of such changes.
7.8 Backup Procedures
393. Bidders are strongly advised to prepare contingency plans and backup facilities and locations, including multiple means of accessing the Internet, in the event of technical difficulties at their primary bidding locations. In previous SMRA auctions, Industry Canada had made provisions for eligibility rule waivers to be used in the case where a bidder was unable to submit its bid during a given round (for example, due to technical difficulties). Such waivers are not suitable in the context of a CCA format and its related activity rules. In response to the consultation, Rogers suggested the use of extension rights as an alternative to waivers. The extension rights would allow bidders to unilaterally extend the length of a bidding round. MTS Allstream rejected this suggestion, stating that it could add numerous delays to the auction. The final detailed provisions concerning backup procedures will be made available to qualified bidders prior to the start of the auction. However, Industry Canada reserves the right to extend the length of a round, or to alter the bidding schedule, in the event of being notified that a bidder(s) is experiencing technical difficulties at its primary and backup bidding locations, which prevents the bidder(s) from submitting a bid.
394. In the application forms, applicants must designate up to three individuals who will have authority to place bids on their behalf. Each designated bidder will receive individual codes to participate in the auction. Having more than one individual designated as a bidder will strengthen backup contingency plans for applicants in case of unforeseen problems. Industry Canada cannot guarantee any specific turn around time for changes or additions submitted after the application date.
395. As a last resort, provisions will be made for Industry Canada staff to submit bids on a bidder’s behalf. This is a limited backup facility for bidders who experience technical difficulties which prevent them from accessing the auction system. Only the individuals listed as designated bidders will be able to use this option. Details of these provisions will be provided to the qualified bidders prior to the start of the auction.
8. Post‑auction Process
8.1 Bidder Payment
396. Within 10 business days following the announcement of provisional winners, each provisional licence winner will be required to submit 20% of its final payment.
397. The remaining portion, 80% of the final payment, will be due within 30 business days of the announcement of the provisional licence winners. Failure by the winning bidder to make these final payments in a timely fashion will result in the licence not being issued and the bidder will be subject to the applicable forfeiture penalty (see Section 8.2 — Forfeiture Penalties). These final payments will be non‑refundable. If the licence winner fails to make these payments within the specified period, then the provisional winner’s irrevocable standby letter of credit will be drawn upon.
398. All payments must be made by certified cheque, bank draft, or wire transfer, payable to the Receiver General for Canada, drawn on a financial institution that is a member of the Canadian Payments Association.
399. These payments for the initial 20‑year term are in lieu of any fees that will be fixed for the radio authorization under the Radiocommunication Act or any other Act.Footnote 22
8.2 Forfeiture Penalties
400. Following the conclusion of the auction, winning bidders that fail to comply with the specified payment schedule or fail to come into compliance with the eligibility requirements stated in Section 6.4 of this Framework will forfeit their right to the licence. Furthermore, non-compliant bidders will be subject to a penalty in the amount of the difference between the forfeited licence payments and the eventual revenue from payments or fees for the licence(s), if the eventual revenues are lower than the forfeited licence(s) payment(s) (to be determined by a subsequent licensing process). This is referred to as the interim proxy forfeiture penalty.
401. In the event of licence forfeiture, the bidder’s financial deposit will be drawn upon for the full amount of the interim proxy forfeiture penalty. If the interim proxy forfeiture penalty is greater than the full amount of the bidder’s financial deposit combined with any partial payment, or if a deposit in the form of a letter of credit has been returned before the forfeiture, then the difference will be owing and payable to the Receiver General for Canada.
402. A bidder that forfeits on a licence, or any of that bidder’s affiliates and associated entities, may not be eligible to bid on it in any subsequent licensing process.
8.3 Eligibility Documentation
403. Bidders that are declared provisional licence winners will be required to submit two copies of documentation related to their compliance with the condition of licence regarding eligibility in accordance with Section 6.4 — Eligibility. Documentation must be submitted by the provisional winners within 10 business days of being notified that they are the provisional licence winners. For further information, refer to Client Procedures Circular CPC-2-0-15, Canadian Ownership and Control, as amended from time to time.
404. Industry Canada will review these documents expeditiously. The Department will then notify each provisional licence winner regarding compliance with the eligibility requirements. In the event that a provisional licence winner does not, in the opinion of Industry Canada, comply with the eligibility requirements, Industry Canada will provide the provisional licence winner with an opportunity to make changes in order to become compliant.
405. At any point in time, Industry Canada may formally notify a provisional winner that outstanding documents must be provided within 60 days. This would normally transpire only if a significant period of time has passed since the close of the auction. If the provisional winner fails to comply within 60 days following a formal notification by the Department, the provisional winner may be deemed ineligible to hold a licence. In such a case, licences will not be issued and the provisional winner would also be subject to the interim proxy forfeiture penalties outlined in Section 8.2.
8.4 Issuance of Licences
406. Industry Canada will issue spectrum licences to provisional winners upon completion of the following: (1) payment of the sum of their bids and the sum of their penalties, if any; and (2) a determination by the Department that the eligibility requirements have been met. If a Canadian ownership and control review is required, such a determination may take several months to complete depending on the complexity of the provisional winners’ ownership and control structures and the responsiveness of the winners in providing any required additional documentation.
9. Bidder Training and Support
407. The consultation noted that qualified bidders would receive the necessary information to participate in the auction several weeks prior to the start of the auction, and proposed that a mock auction be held one week prior to the start of the auction in order to allow qualified bidders to better familiarize themselves with the bidding process.
Summary of Comments
408. Software Considerations and Mock Auctions: Many respondents, including Rogers, Bell, MTS Allstream, Public Mobile, SaskTel, Tbaytel and Xplornet, requested access to the winner and price determination tool (also known as the solver) at least three months prior to the auction. They stated that without access to the solver, bidders cannot verify if the auction process works adequately or audit their own auction simulations.
409. Some respondents also requested additional tools and information, including a detailed guide for uploading and editing supplementary bids, data file formats for the round results and screenshots of the auction software.
410. There was a general consensus that multiple mock auctions would be required for bidders to become familiar with the auction software.
411. Information Sessions: Both Rogers and Xplornet requested that Industry Canada conduct additional information and training sessions in order to help bidders to become familiar with the CCA software.
412. Auction Schedule: Bell, MTS Allstream, Rogers, TELUS and Xplornet requested that a detailed schedule of the auction process be released as soon as possible.
Discussion
413. Software Considerations and Mock Auctions: Industry Canada notes that providing earlier access to a stand‑alone winner and price determination tool would allow more time for bidders to become familiar with the software and to prepare for their participation in the auction. It should be noted that rules and formulas used by the winner and price determination tool are currently available on Industry Canada’s Spectrum Management and Telecommunications website; however, the related software is not yet available.
414. In previous auctions, a mock auction was usually conducted one week prior to the start of the auction. Given the new CCA format and software, Industry Canada considers that conducting additional mock auctions would be beneficial for bidders.
415. Industry Canada will provide qualified bidders with a bidder information document and a bidder user manual containing screenshots of the auction software, along with detailed bidding instructions, software requirements and the data definitions of the round results files.
416. Information Sessions: Industry Canada conducted a CCA information session in May of 2012. As in the past, Industry Canada plans to host an information session for qualified bidders prior to the mock auctions. The information session will address the auction process, the policies that affect bidding activity (e.g. spectrum aggregation limits) and the functionality of the software.
Decision
417. Approximately six weeks prior to the auction, qualified bidders will be provided with access to the winner and price determination tool for the allocation stage, on a website hosted by Industry Canada. Qualified bidders will be advised when it becomes available.
418. One information session and up to three mock auctions will be conducted prior to the auction. Each mock auction will last one to two days and will begin approximately five weeks prior to the auction. The final schedule for the mock auctions will be included in the bidder information document.
419. Approximately seven weeks prior to the start of the auction, bidder information documents and the bidder user manual will be sent to qualified bidders. These documents will contain the schedule for the information session and the mock auctions, as well as screenshots of the software and the data definitions of the round results files.
420. The full schedule for the auction process is included in the Table of Key Dates on Industry Canada’s Spectrum Management and Telecommunications website at http://www.ic.gc.ca/spectrum.
10. Post‑auction Licensing Process for Unassigned Licences
421. Industry Canada will make unassigned licences available for licensing through an alternative process, which could include a subsequent auction at a later date following the close of the initial auction. The timing and form of such a process will depend on the demand for the available licences. Industry Canada may conduct a public consultation should it consider it necessary.
11. Licence Renewal Process
422. Industry Canada sought comments on its proposed licence renewal process.
Summary of Comments
423. WIND and SSi agreed with the renewal process as proposed by Industry Canada.
424. MTS Allstream suggested that the renewal process begin five years prior to the end of the licence term, whereas TELUS suggested that a separate public consultation be conducted at the earliest opportunity with respect to annual licence fees for mobile spectrum.
425. Bell and Rogers commented that licensees should have a "high expectation of renewal" not only in the initial licence term, but in all subsequent licence terms.
Discussion
426. Industry Canada considers that a public consultation on licence renewal is better conducted towards the end of the licence term, as this results in a more accurate assessment of: the licensees’ compliance with the conditions of licence; the general environment (e.g. use of the band by other licensees and international developments); and the demand for spectrum from other parties.
427. On the issue of the high expectation of renewal for subsequent licences, as noted in the FSAC, spectrum licences have a high expectation of renewal under certain circumstances. An assessment of whether these circumstances exist is better assessed during the consultation on the licence renewal process.
Decision
428. Based on the above considerations, the licence renewal process will apply as proposed:
429. Following the end of the initial licence term, licensees will have a high expectation of renewal. New licences will be issued for a subsequent term through a formal renewal process unless the Minister determines that a breach of licence condition has occurred, a fundamental reallocation of the spectrum to a new service is required, or an overriding policy need arises. In the absence of the previously outlined determinations, the renewal process facilitates the continued provision of services by existing licensees.
430. As part of the licence renewal process, the Minister of Industry retains the power to fix the new terms and conditions of spectrum licences and to amend these during the new term of the licence and in accordance with subsection 5(1) of the Radiocommunication Act. As noted in the FSAC, licence fees that reflect some measure of market value will apply to licences issued through a renewal process. Accordingly, the renewal process will serve to determine whether new licences will be issued, the terms and conditions that will apply to the new licences and the applicable licence fees.
431. Generally, approximately two years prior to the end of the licence term, Industry Canada will review whether there is a need for a fundamental reallocation of the spectrum to a new service, or whether an overriding policy need has arisen. A review of the licensee’s continued compliance with the conditions of licence will also begin. Industry Canada will launch a public consultation to discuss whether or not, in light of the above‑noted issues, new licences should be issued for a subsequent term. The consultation paper will also propose, and invite comments on, licence conditions and fees that would apply during the subsequent licence term.
432. For long‑term spectrum licences, Industry Canada’s assessment of a licensee’s eligibility for a subsequent licence term will generally be comprised of, among other factors: a review of the licensee’s continued compliance with all conditions of licence, including any deployment requirements; a scan of the general environment (e.g. use of the band by other licensees and international developments); and an assessment of the demand for spectrum from other parties.
12. Clarification Process — Amendments and Supplements
433. Industry Canada may also amend or supplement the auction rules and procedures contained in this Framework. Any such amendment or supplement will be published on Industry Canada’s website and will be sent to all qualified bidders.
434. For a limited period of time, Industry Canada will accept written questions seeking clarification of the rules and policies set out in this Framework. Written questions asking for clarification of rules or policies will be accepted until the deadline specified in the Table of Key Dates. Every effort will be made to post the questions received, along with Industry Canada’s written responses, in the shortest time frame possible, depending on the volume of the questions received. Questions and responses that are of a similar nature and subject matter may be grouped and summarized. Questions regarding bidding procedures or the functionality of the software will be addressed during the information session and in mail-out packages intended for qualified bidders, and will not be included in this clarification process, unless they are deemed to be critical information for potential bidders at this point in time. These answers will be considered as clarification of the policies set out in SMSE-002-12, Policy and Technical Framework: Mobile Broadband Services (MBS) — 700 MHz Band, Broadband Radio Service (BRS) — 2500 MHz Band, and as amendments or supplements to the rules set out in this Framework.
435. Questions should be submitted in electronic format (WordPerfect, Microsoft Word or Adobe PDF) to the following email address: ic.spectrumauctions-encheresduspectre.ic@canada.ca.
436. Written questions should be addressed to the Manager, Auction Operations, Spectrum Auction Branch, Industry Canada, 300 Slater Street, Ottawa, Ontario K1A 0C8.
437. All questions should cite the Canada Gazette, Part I, the publication date, the title and the notice reference number (DGSA-001-13). Questions and responses will be posted on Industry Canada’s Spectrum Management and Telecommunications website at http://www.ic.gc.ca/spectrum.
13. Obtaining Copies
438. All spectrum‑related documents referred to in this paper are available on Industry Canada’s Spectrum Management and Telecommunications website at http://www.ic.gc.ca/spectrum.
439. For further information concerning the process outlined in this Framework or related matters, contact:
Manager, Auction Operations
Spectrum Auction Branch
Industry Canada
300 Slater Street, 17th Floor
Ottawa, Ontario K1A 0C8
Telephone: 613-957-8106
Fax: 613-949-7667
ic.spectrumauctions-encheresduspectre.ic@canada.ca